{"id":34516,"date":"2024-10-13T23:39:29","date_gmt":"2024-10-13T20:39:29","guid":{"rendered":"https:\/\/entarabi.com\/?p=34516"},"modified":"2024-10-13T23:40:37","modified_gmt":"2024-10-13T20:40:37","slug":"rethinking-web3-startup-valuations-in-saudi-arabia","status":"publish","type":"post","link":"https:\/\/entarabi.com\/en\/2024\/10\/rethinking-web3-startup-valuations-in-saudi-arabia\/","title":{"rendered":"Rethinking Web3 Startup Valuations in Saudi Arabia"},"content":{"rendered":"

The Saudi startup scene is expanding rapidly, and while the Web3 ecosystem is still relatively small, it is growing at a promising pace. However, with this growth comes a crucial question: How do we accurately value these innovative companies? A recent <\/span>Jada report<\/span><\/a> highlighted the need for smarter valuation methods in our region. As the Founding Partner of <\/span>Adaverse<\/span><\/a>, I\u2019ve invested in over 60 Web3 startups across 11 countries, including 8 in Saudi Arabia: TakaDAO, Nuqtah, Sorbet, Oumla, Mithu, Umrah Cash, Grintafy & Tharawat Green Exchange.\u00a0<\/span><\/p>\n

Here\u2019s my perspective on navigating the complex challenge of valuating a Web3 startup:<\/span><\/p>\n

Web3 Startups: A Tale of Two Types<\/b><\/p>\n

In our experience, Web3 startups generally fall into two camps:<\/span><\/p>\n

    \n
  1. Real-world problem solvers:<\/b> these startups have clear business models and use cases. We can value them using traditional methods, looking at market potential and growth projections.<\/span><\/li>\n
  2. Tech innovators<\/b>: these are the cutting-edge firms working on things like zero-knowledge proofs or AI-blockchain hybrids. They often command higher valuations due to hefty R&D costs and the need for top-tier global talent.<\/span><\/li>\n<\/ol>\n

    Early-Stage Valuation: It’s All About the Runway<\/b><\/p>\n

    In general, it is widely accepted that each round has it’s own particular thing to look at when making investment decision:<\/span><\/p>\n

      \n
    • Pre-Seed: Idea<\/span><\/li>\n
    • Seed: Team<\/span><\/li>\n
    • Series A: Product<\/span><\/li>\n
    • Series B: Traction<\/span><\/li>\n
    • Series C: Revenue<\/span><\/li>\n
    • Series D: Profit<\/span><\/li>\n<\/ul>\n

      *Traction here means more and more users want to use it, or more and more clients, the increase.<\/span><\/p>\n

      We are now discussing the early stages, such as pre-seed and seed rounds, for brand-new startups with incomplete products and little to no traction. At this stage, the focus is on their capital needs. Key considerations include:<\/span><\/p>\n

        \n
      1. Idea and team<\/span><\/li>\n
      2. How much and how long they need to build a MVP (minimal viable product)<\/span><\/li>\n
      3. How much and how long they need to find the PMF (Product Market Fit) by showing positive early traction<\/span><\/li>\n<\/ol>\n

        Having built ventures in various markets, we’ve got a good sense of how these costs vary across different regions.<\/span><\/p>\n

        The Saudi Startup Scene: Times Are Changing<\/b><\/p>\n

        The Saudi ecosystem is evolving rapidly. In the past, abundant local capital led to some sky-high valuations, even for startups with just an idea. But things are shifting:<\/span><\/p>\n

          \n
        1. Money’s getting tighter: global economic trends mean investors are more cautious. Early-round valuations of 5-10 million are becoming the norm.<\/span><\/li>\n
        2. Investors are asking tougher questions: after some high-profile flops, there’s more focus on founders’ ability to actually run a business.<\/span><\/li>\n
        3. Everyone wants to be first: there’s still a race to find untapped markets, with founders and investors alike hunting for the next big thing.<\/span><\/li>\n<\/ol>\n

          Valuing Web3 Startups in Saudi: Our Playbook<\/b><\/p>\n

          Here’s how we approach valuations:<\/span><\/p>\n

            \n
          1. Get real about costs: building a Web3 startup isn’t cheap. Factor in tech talent, which is expensive and can be hard to come by, as well as infrastructure and regulatory compliance.<\/span><\/li>\n
          2. Compare apples to apples: don’t benchmark against Silicon Valley. Look at similar startups in comparable markets.<\/span><\/li>\n
          3. Keep founders motivated: make sure valuations leave founders with enough equity (<\/span>minimal 33% and ideally 80+<\/span>) to stay committed long-term.<\/span><\/li>\n
          4. Think beyond borders: assess how well the startup could scale regionally or globally.<\/span><\/li>\n
          5. Stay regulation-savvy: consider how the startup fits with Saudi’s tech vision and regulatory landscape.<\/span><\/li>\n<\/ol>\n

            Typically, the perceived valuation of pre-seed or seed-stage startups ranges from $5 million to $15 million, depending on the team’s experience and early-stage traction, with fundraising amounts between $500,000 and $3 million. However, exceptional founding teams can achieve significantly higher valuations.<\/span><\/p>\n

            What’s Next?<\/b><\/p>\n

            As Saudi’s Web3 scene matures, we expect valuation methods to get more sophisticated. This will likely blend traditional financial metrics with tech-specific factors and an understanding of Saudi’s unique market dynamics.<\/span><\/p>\n

            For founders, the message is clear: focus on building sustainable businesses with a path to profitability. For investors, it’s about understanding both the tech and the local market.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

            The Saudi startup scene is expanding rapidly, and while the Web3 ecosystem is still relatively small, it is growing at a promising pace. However, with this growth comes a crucial question: How do we accurately value these innovative companies? A recent Jada report highlighted the need for smarter valuation methods in our region. As the […]<\/p>\n","protected":false},"author":301,"featured_media":34521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"post_subtitle":"","footnotes":""},"categories":[1789],"tags":[5304,4469,5308,5994],"class_list":["post-34516","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","tag-adaverse","tag-blockchain-2","tag-vincent-li","tag-web-3-0"],"_links":{"self":[{"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/posts\/34516","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/users\/301"}],"replies":[{"embeddable":true,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/comments?post=34516"}],"version-history":[{"count":0,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/posts\/34516\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/media\/34521"}],"wp:attachment":[{"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/media?parent=34516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/categories?post=34516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/entarabi.com\/en\/wp-json\/wp\/v2\/tags?post=34516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}